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AG Derek Schmidt: Court should strike down CFPB governance structure

Release Date: Mar 14, 2017

TOPEKA – (March 14, 2017) – The unique and unaccountable governance structure of the Consumer Financial Protection Bureau (CFPB) violates the Constitution’s separation of powers to the detriment of state authority and should be struck down, Kansas Attorney General Derek Schmidt has told a federal appeals court.

In a brief filed last week in the U.S. Court of Appeals for the District of Columbia Circuit, Schmidt and the attorneys general of 14 other states argue that the statute shielding the CFPB director from removal by the President and insulating the CFPB’s budget from control by Congress violates the Constitution. A three-judge panel of the D.C. Circuit ruled 2-1 that the removal protections for the Director of the Consumer Financial Protection Bureau violate Article II of the Constitution. As a remedy, the D.C. Circuit excised the Director’s “for cause” removal protection from the U.S. Code. However, CFPB’s motion for rehearing en banc was granted and the panel’s order was vacated pending rehearing, essentially reinstating the Director’s extraordinary powers. The new filing asks the full D.C. Circuit to reinstate the panel’s finding that the CFPB’s governance structure violates the Constitution’s separation of powers and principles of federalism.

The attorneys general argue that the unprecedented efforts to insulate the CFPB director’s decisions from review result in essentially unchecked administrative powers, which is at odds with the Constitution’s command that all executive power be vested in the President. The 15 attorneys general argue that the states have an interest in ensuring the division of power within the federal system to avoid unauthorized encroachment on state authority and also to secure individual liberty and the opportunity for citizens to participate actively in governance.

“The CFPB possesses the power to preempt or displace broad swaths of state regulatory authority,” the attorneys general wrote in their filing. “But the agency’s structure permits it to exercise this broad preemptive power without undertaking the careful deliberative processes that would be required of the elected branches of the federal government or of an independent agency headed by a multi-member board. Thus, the CFPB has a significantly reduced incentive to give proper weight to federalism interests than have the political branches or multi-member agencies. This reduced incentive increases the risk of federal agency encroachment on state prerogatives.”

The brief argues that the states have a direct interest in ensuring that the CFPB governance structure is accountable to democratically elected institutions.

The case is PHH Corporation et al. v. Consumer Financial Protection Bureau. A copy of the brief is available at http://bit.ly/2n60vfr.